03/08/2009
Where is the combined tax policy leading us?

There are two ways our tax money are spent by our combined governments:
Infrastructure and globally affective programs
These are things that benefit the entire country, that are readily identifiable as being in the interest of the common good. Some examples are:
Individually (subset) affective programs
Many of the ways tax money is spent has a subset impact. An individual, a small group of individuals, targeted to some individuals, or a class of individuals. Some examples are:
There is a specific problem with these programs. They are paid for by one set of Americans and they benefit another group. The group that benefits makes sure the benefits do not waiver, Politicians respond and preserve the benefits and when pressed "try to do more". Once started, it is not possible to shrink, reduce or recall such programs. There is not effective mechanism for the very large number of Americans paying the taxes to wield any real power, and there is a slight conflict of interest for the Politicians and the beneficiaries of the program.

What are today's taxes like? If you live in Silicon Valley and you own a home, between Federal income, State income, Medicare/Social Security, Property, Sales and Gasoline taxes it is quite credible to estimate the current collective marginal rate to be 49%.

Write-only tax programs
As briefly mentioned already, part of the difficulty of spending programs, there is no mechanism for lowering tax rates. Since many members of the political system have nearly endless appetites to "transfer wealth" (taking money from those that earn more of it and giving it to those that earn less) the ratcheting nature of the tax situation makes a prediction of "tax increases over time" credible.

There was once quite a flap over "taxation without representation". Little did they know that "taxation with representation" might even more likely to endless tax rate ratchet.

When the income tax began (1862) the initial rate was 3% with a higher rate of 5% for "higher incomes" There was discussion at the time of adding a cap of 6%, but this was not passed because of a concern that with such a measure in-place, it would encourage the tax rate to rise to 6% quickly and without the real need for it. This means that the Federal tax rate is presently about 4 times the upper limit imagined as excessive when the income tax went into effect in 1862.

My concern is that the tax rates will continue to rise. In tiny increments, in special ways, the rate will continue to rise.

What is the limit?
It is difficult to predict this with precision but consider this. In 140 years, it jumped by a factor of four.

Consider an absurd scenario. The combined tax rates eventually rise to 95%, where 95% of every dollar earned (by those paying 80% of the taxes) is taken by the Governments, and the people earning the money get to keep 5%. Do you think this would last very long? I suspect that at 95% we would have another revolution. It would cause a collapse and a re-construction of another approach.

OK, so we have two ends of a spectrum
at 49% those paying taxes are content to do so
at 95% those paying taxes are probably willing to overthrow the government

That leaves just 46%, or put another way, we are presently about 50% of the way to such a horrific outcome.

What options do we have?
This is the tough part. Unless those paying the taxes find a voice in Congress to rival the voices of those trying to get the money, the status quo cannot change.

It seems like some rather horrible proposals need to be discussed. Perhaps we need to make sure one really tough idea balances each of the easy ones (like universal healthcare). Perhaps we need to find a way to get bills introduced to eliminate portions of the Federal budget.

I think (as tedious as it would be) that somehow we need to find a way for the people that will need to pay the taxes get a greater voice than the people that will not pay for, but will benefit from the tax. In some circles, this is known as "eliminating the conflict of interest".

The radical ideas is - weight my vote by my marginal tax rate. Those that pay higher tax rates ought to have a stronger vote than I do, and I should have a stronger vote than those that pay a lower marginal rate.

It isn't easy, but if we do not find a solution, the solution could well be one that is really terrible.



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